Westlake Chemical Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Westlake is a vertically integrated chemical, polymers and building-products manufacturer operating through Vinyls and Olefins segments.
Financial performance
- Net sales: $2.357 billion, up 22% from $1.932 billion in Q1 2020. Average selling prices rose 23%; sales volume declined 0.7%.
- Gross profit: $509 million versus $283 million; gross margin increased to 22% from 15%.
- Operating income: $346 million versus $136 million. Vinyls contributed $200 million ($73 million prior year); Olefins contributed $180 million ($62 million prior year). Corporate and other was a $34 million loss.
- Net income attributable to Westlake: $242 million, or $1.87 per diluted share, versus $145 million, or $1.13 per diluted share. Consolidated net income was $253 million.
- EBITDA: $553 million versus $337 million; this is a non-GAAP measure.
- Cash flow: Operating activities provided $265 million, compared with $61 million. Capital expenditures were $141 million; operating cash flow less capital expenditures was $124 million. Investing activities used $135 million and financing activities used $34 million.
- Liquidity and debt: Cash and cash equivalents were $1.393 billion at March 31. Debt was approximately $3.6 billion; the $1 billion revolving facility was undrawn and fully available. The company reported compliance with debt covenants.
- Balance sheet: Current assets were $3.734 billion and current liabilities were $1.326 billion. Total assets were $14.050 billion and total equity was $6.825 billion.
- Dividend: $0.27 per common share for the quarter, compared with $0.2625 a year earlier.
Material changes and drivers
- Higher prices and integrated margins across major products, including PVC, polyethylene and building products, drove the year-over-year improvement. Stronger global demand and North American residential construction and repair markets supported results.
- The February 2021 severe winter storm disrupted southern U.S. facilities, reducing production and sales and adding approximately $14 million in maintenance costs. Affected facilities had resumed production by the filing date.
- Higher feedstock and natural-gas costs, storm-related costs and increased SG&A partly offset improved product pricing. SG&A rose $16 million to $136 million, mainly from employee compensation.
- Q1 2020 included a $62 million income-tax benefit related to the CARES Act NOL carryback. Q1 2021 had a 22.2% effective tax expense rate, versus a 35.3% tax benefit rate in Q1 2020.
- Effective January 2021, Westlake consolidated its 50%-owned RS Cogen joint venture and presented Entergy’s 50% interest as noncontrolling interest.
Outlook, risks and contingencies
- Management expected global demand for most Vinyls and Olefins products to remain robust through the rest of 2021. This is a qualitative outlook; the filing provides no specific earnings or revenue guidance.
- The Petro 2 ethylene-unit turnaround was deferred to the second half of 2021 and was expected to last approximately 60 days.
- Results remain exposed to chemical-industry cyclicality, supply and demand, product and feedstock price volatility, new capacity, trade and tariff changes, and COVID-19 developments. Management noted that future pandemic effects could not be estimated with certainty.
- Environmental reserves were approximately $56 million. The company also disclosed reasonably possible additional environmental losses of $65 million to $130 million. It stated that potential caustic-soda price-fixing class-action impacts could not currently be estimated.
- The filing discusses EPA proceedings concerning flare emissions and states that a resolution may require a monetary sanction exceeding $1 million, but management did not expect a material adverse effect.
Important facts for investors to verify
- Whether robust demand and improved pricing persist, and how new capacity and input-cost changes affect segment margins.
- The final operational and financial effects of the February storm and the timing, duration and cost of the Petro 2 turnaround.
- Progress and potential exposure in the caustic-soda litigation, environmental matters and EPA flare proceedings.
- Debt maturities, covenant compliance and the adequacy of liquidity if operating conditions weaken or major projects require additional financing.